Recently, the Punjab and Haryana High Court has ruled that independent dyeing and processing units carrying out fabric processing on a job-work basis cannot be subjected to textile committee cess. The Court held that, in the absence of an express provision under the Textile Committee Act, 1963, processing activities cannot be treated as “manufacture” merely by importing definitions from the central excise regime.
The petitioner was engaged in the business of dyeing and processing grey fabric on a job-work basis for several years, without manufacturing textiles of its own. Cess demands were issued by the Textile Committee alleging that such processing amounted to manufacture, thereby attracting levy under Section 5A of the Textile Committee Act, 1963, read with the Textile Committee (Cess) Rules, 1975.
The demands pertained to periods several years prior to their issuance. The petitioner challenged the levy on the ground that independent processors were not manufacturers under the 1963 Act and that the demands were barred by limitation under Rule 10 of the Textile Committee (Cess) Rules, 1975. An appeal filed before the Textile Cess Appellate Tribunal, Mumbai, was dismissed through a non-speaking order, prompting the petitioner to approach the High Court.
The Petitioner contended that fabric processing undertaken on a job-work basis does not amount to manufacture under the Textile Committee Act, 1963, and that the statute does not define “manufacture” in a manner comparable to the central excise law. It was argued that the cess could be demanded only within one year under Rule 10 of the Textile Committee (Cess) Rules, 1975, whereas the impugned demands were issued after a lapse of more than three years.
The Respondent authorities argued that the petitioner had failed to file mandatory returns and therefore could not invoke the limitation under Rule 10. It was further contended that the definition of “manufacture” under the Central Excise Act, 1944, read with the Central Excise Tariff Act, could be applied to determine cess liability under the 1963 Act, as fabric processing formed an integral part of manufacturing activity.
The Court rejected the respondent’s attempt to import the excise law definition into the textile cess statute. The Bench observed that while the definition of manufacture under the Central Excise Law is expansive, the Textile Committee Act, 1963 contains no such provision. The Court held that “In the absence of specific provision in 1963 Act, it was impermissible to borrow definition from Central Excise Act which is an independent Act levying a different type of duty.”
The Court noted that the cess under Section 5A of the Textile Committee Act, 1963 was introduced decades earlier, yet no cess had been collected from independent processing units for nearly twenty-five years. The Bench took note of official communications and subsequent policy decisions demonstrating that the authorities themselves did not consider independent processors liable to cess.
The Court found that the demands were raised well beyond the period prescribed under Rule 10 of the Textile Committee (Cess) Rules, 1975, observing that notices issued several years after the relevant period were clearly time-barred.
The Bench also found fault with the Tribunal’s approach, noting that the appellate authority had dismissed the appeal mechanically without addressing the factual and legal issues involved.
In light of the foregoing discussion, the Court allowed the writ petitions, set aside the impugned orders passed by the Textile Cess Appellate Tribunal, and quashed the cess demands raised against the independent processing units. The Court held that the textile committee cess was not leviable on job-work-based dyeing and processing activities and that the demands were barred by limitation
Case Title: M/s Varun Fabs Ltd. v. Union of India and Others
Case No.: CWP-5956-2009
Coram: Justice Jagmohan Bansal and Justice Amarinder Singh Grewal
Advocate for the Petitioner: Sr. Adv. Puneet Jindal, Advs. Rahul Bansal and Balwinder Singh
Advocate for the Respondent: SGC Arun Gosain, Advs Swati Arora, Sourabh Goel, Anju Bansal, Geetika Sharma, Himanshi Gautam
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